Tax/Salary sacrifice advise

Just received an email from my employer that due to the recent NMW increase my salary sacrifice benefits (car, c2w and pension) take me below the NMW so they are changing my pension to a relief at source pension.

I believe this would mean I don’t make NI saving on the contributions so would leave me worse off (the email failed to mention this)

I have now reduced my pension contributions from 14% to 7% to keep me above NMW and asked to be kept on salary sacrifice.

The problem is now as I am in Scotland anything I earn over £43,663 I am paying 42% tax and 8% NI which makes me feel violated and I would rather have this money put in my pension.

I am told by HR it’s only my base Salary that is used for the calculations and they can’t take into account allowances I have been given, can anyone confirm is this is correct? I have tried searching but can’t find anything

If this is correct what are my other options? Can I ask my employer to keep my salary sacrifice and also pay extra money in via relief at source? Or any other options?

I’m confused, you drop below NMW but also earn above £43k, how many hours a week do you work?!

I am paying 42% tax and 8% NI which makes me feel violated

Does it really?

If I new NMW was £43k I’d have changed my job a while ago!

I’m confused, you drop below NMW but also earn above £43k, how many hours a week do you work?!

Something doesn’t stack up here, I think there’s a misunderstanding.

The problem is now as I am in Scotland anything I earn over £43,663 I am paying 42% tax and 8% NI which makes me feel violated and I would rather have this money put in my pension.

Says a Tory voter who only earns the Minimum Wage.

I guess if:

£1.5k a month salary sacrifice lease car
(Maybe his work pay most of it as a company car allowance)
AND £400 per month paying off a £7k bike on C2W
AND £600 per month pension contributions.

That could take our poor violated OP below NMW. Must be a lot tough life even with the schools, hospitals and other public services up here being in such good shape

National Minimum Wage = @£20100 annually.

So are you putting £23k+ into pension, car and c2w?

Or do you have a low base salary with allowances for shift, or bonuses or similar?

Well this is going well for you OP 🤣

I would rather have this money put in my pension.

You’ve a car & a bike, sounds like you’re not prioritising your pension anyway.

What the OP is alluding to is real although rather extreme in their case due to the combination of high pension contributions and whatever they are sacrificing for the car plus bike schemes. That is salary sacrifice so for the purposes of minimum wage calculations is taken off the gross figure. The OPs gross salary minus the salary takes their net gross salary below the minimum wage calls.

This was a reason given to us for not wanting to do an EV car salary sacrifice scheme as it wouldnt’ be available to lower earners as it would take them below the NMW. Tosh of course, HR just didnt want to administrate it and were looking for excuses.

OP, are the allowances contractural, if not they may not contribute to your salary for NMW purposes.

And yes paying over 50% tax on £43k is disgusting despite what many here think. Instead of dealing with the real cost of living issues governments just hammer middle earners time and time again.

I know plenty of very well off people doing there best to pay as little tax as possible, so I won’t jump on him for that

But yes I don’t understand how you can be falling into the higher rate tax band and earning minium wage….

And yes paying over 50% tax on £43k is disgusting despite what many here think.

Whereas another view is that it is disgusting that some people earn £100K a year while other earn £20K a year with none working any harder than the other but the £100K person just having been more fortunate in life.

Take the amount of tax you pay out of it and just look at net income and see if you feel better.  i.e. £100K person gets around £60K, £20K person gets around £20K.  £60K person still doing alright aren’t they…

This is how it works OP – you’ve obviously maxed out your salary sacrifice to a big extent – well done.

By the way, the sacrifice on the car and bike also affects the amount the company pay into your pension, one of the big reason’s I’ve not got myself a nice shiney EV ay £700 a month on our scheme – that’s a massive amount of pension (over £150 a month in my case) that my employer wouldn’t be contributing.

One thing is certain, you’re now in the 40$ bracket, tough shoot. that’s how it works – you’ve maxed out your salary sacrifices.

And yes paying over 50% tax on £43k

Unless I’ve missed something, how do you end up paying 50% tax on all £43k?

Sorry should have said my base salary is around £35k the rest is made of allowance and overtime etc

I work a lot of hours and due to my shifts and having a baby and toddler my partner is unable to work

If we were both working full time earning NMW we would be significantly better off due to the way tax works

I am definitely not well off but I can see why people might think that as didn’t want to post my full Household situation

Unless I’ve missed something, how do you end up paying 50% tax on all £43k?

Scotland income tax and NI.

https://www.gov.uk/scottish-income-tax

And yes paying over 50% tax on £43k is disgusting despite what many here think. Instead of dealing with the real cost of living issues governments just hammer middle earners time and time again.

it’s commonly misrepresented as such but it’s NOT 50% tax on £43K, it’s 50% tax on earnings OVER £43k.  If you don’t know this , I’m not sure you deserve 43k!

Yep progressive taxation. Lots of people don’t seem to understand it!

of course once you reach the higher tax band you get taxed more but you do receive higher pension benefit too in terms of tax relief.

I.e. £100K person gets around £60K,

rofl

how do you end up paying 50% tax on all £43k?

Agreed, there’s a huge amount of duff info on this thread

Sorry should have said my base salary is around £35k the rest is made of allowance and overtime etc

I work a lot of hours and due to my shifts and having a baby and toddler my partner is unable to work

to answer your original question.  Some types of payment count, some do not.  You’d be better placed checking the .gov.uk site than asking here with vague questions.  One thing to be aware is the NMW is determined on your pay period (eg monthly) not annually and so some low basic very high commission people paid quarterly or annual bonus can trip over these sort of issues too.

you’ll find it difficult to get people to feel much sympathy for someone maximising their salary sacrifices to avoid tax, who has discovered some limitations on it.

£100K person gets around £60K

A person in Scotland earning £100k and doing absolutely nothing to manage their tax now earns £65.2k pa.  If they were in England the same person would be on £68.5k.

At 60K it would be £45.6k and £43.5K respectively.

at 40K is its £32.2k and 32.3k

at 30K you get 25.1k either way

at 22k you get 19.4K either way

as the op has discovered higher earners can do various things to manage their tax which benefit them more that low earners, and which the lowest earners might not qualify for at all.  Everyone always believes they pay more tax than they should and that higher earners should pay more than they do!

Wait until they get into the over £100K bracket and start losing their tax allowance meaning that in real terms the money from 100 – 125 is getting 60% taken from it.

And folk in Scotland earning the actual NMW are better off than those in England because they pay less tax – why do you want to make lower earners pay more tax?

If this is correct what are my other options? Can I ask my employer to keep my salary sacrifice and also pay extra money in via relief at source? Or any other options?

To come back to the OP’s question.  I don’t think there’s any rule that they can’t do both, but they are under no obligation to do so and it will probably cause them a load of admin hassle and potentially break IT systems so I wouldn’t be surprised if they say no.

YOU can make additional contributions yourself, which would then entitle you to make a claim to HMRC for the difference (for the PAYE element, not the NI element).

Wait until they get into the over £100K bracket and start losing their tax allowance

Yeah, everyone i know in that bracket is just dumping it into their pension and waiting till they’re 55 to drawdown their pension tax free and pay off the mortgage.

Sorry should have said my base salary is around £35k the rest is made of allowance and overtime etc

I work a lot of hours and due to my shifts and having a baby and toddler my partner is unable to work

If we were both working full time earning NMW we would be significantly better off due to the way tax works

That is irrelevant of whether you’re in Scotland or England…

So crack on – go find a lower paid job AND get your OH out working.  Sunak & Co have been talking about ‘slackers’ :-)

Yeah, everyone i know in that bracket is just dumping it into their pension and waiting till they’re 55 to drawdown their pension tax free and pay off the mortgage.

Not the most sensible idea, using up the tax-free allowance like that – likely means paying higher levels of Income Tax through their retirement (especially once their State Pension kicks in).

By the way, the sacrifice on the car and bike also affects the amount the company pay into your pension

That’s not how it works in any company I’m familiar with.

Must be a lot tough life even with the schools, hospitals and other public services up here being in such good shape

Source: trust me, bro!

Not the most sensible idea, using up the tax-free allowance like that

Maybe not but I get the house extension that I really wanted when 56 rather than missing out on it for 11 years by keeping my tax free money with the added point of “could always be dead by then”.

You could always set up another private pension outside of the work one. You get 20% credit on payments in. If it is higher rate tax you are saving then you will need to file self assessment tax return to claim back the rest. Not as efficient on NI I believe, but there you go.

@Aidy, it does in ours – we’ve an average salary pension scheme (Higher Ed), so based on gross salary after deduction of benefits. It’s too big a hit given around 23% is paid in on top of my contributions.

Yeah, everyone i know in that bracket is just dumping it into their pension and waiting till they’re 55 to drawdown their pension tax free and pay off the mortgage.

If you’re in the 100 to 125 bracket then fair enough. But if you’re approaching 150 then the best option is to alternate. Use pension conts one year to reduce your taxable to a ton, then next year take the full 150. That way you pay 50% marginal on that £50k every two years rather than 60 % marginal on £25k every year.

And also, you’ve probably paid off the mortgage already if you’re earning that much.

Not the most sensible idea, using up the tax-free allowance like that – likely means paying higher levels of Income Tax through their retirement (especially once their State Pension kicks in).

Agreed

I’m surprised the organisation let you sail so close to the minimum wage by taking on your last SS.

Also when you give up your SS you are going to still incur significant costs for the following tax year.

I’m surprised the organisation let you sail so close to the minimum wage by taking on your last SS

Its not up to them to give you financial advice – the rules are, you cannot salary sacrifice so much that it takes you under minimum wage, thats it. So if you want a bike to work, increase pension etc, fine, your choice, so long as you dont breach that requirement. The OP has now bust that figure, so they need to fix it.

Its black and white, and not the employers job to decide what shade of grey is right for the employee.

OP : the minimum wage is £11.44. The 40% tax rate kicks in at £43,663 in scotland. You have to work 3816 hours a year to start clipping, which is 73 hours a week or 10.5 hours a day with zero days off per week (assuming your holidays get paid with all your overtime included), or 12 hours a day on a 6 day week. Are you really hitting that number of hours?

And also, you’ve probably paid off the mortgage already if you’re earning that much.

nice one. 100k is £5,700 per month, a good wage. a 3 bed semi round here is £600k (ish) – even a 30 year mortgage is more than half your take-home pay at current interest rates (£3,200 per month)

Any care to place a bet on whether the bike on salary sacrifice has ever been used to you know… Cycle2Work

There’s an awful lot of people on here not understanding how salary sacrifice works.  OP already said he’s on 35K plus OT etc.  he’s used salary sacrifice to make sure he doesn’t hit the 50% marginal tax rate at £43K which applies in Scotland and to minimise his tax.  The amount of salary sacrifice he’s taken has reduced his hourly rate from approx £18 per hour to below the new minimum wage of approx £11 which is not allowed hence employer mucking around with his pension contributions as that’s the only salary sacrifice that isn’t fixed.

nice one. 100k is £5,700 per month, a good wage. a 3 bed semi round here is £600k (ish) – even a 30 year mortgage is more than half your take-home pay at current interest rates (£3,200 per month)

I don’t have the details on the figures behind your calculation, but I’m not sure the front figures stack up.  What LTV are you assuming? And why 30 years for someone on £100k PA?

Most people on £100k will not be at the beginning of their earning, and house buying journey will they? Fair enough, I don’t have a clue about dahn sarf,  but there’s vanishingly small people around here on £100k starting off a £600k purchase in the ~90-100% LTV area.  Most people on £100k are likely to have bought a house ages ago.

Not that it’s really of huge importance, so perhaps I should just shut up about it. :-)